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Firms with jobs ask for the moon; governments here show restraint

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If any place in Indiana would be immune to a lackluster economy—and the pressure it’s putting on elected officials to land new jobs—Monroe County would be it.

Home to Bloomington and Indiana University’s flagship campus, Monroe County enjoys a lucrative pipeline of tax dollars trickling down to everything from housing to retail shops. The county can afford to be so demanding of existing companies and economic development prospects that it sometimes is derided as anti-business.

So it was noteworthy in July when the county council took an initial step toward approving tax abatements for a vacant Bloomington warehouse before a single council member met with the company wanting to buy the building.

By declaring the warehouse eligible for Economic Revitalization Area status, the seven-member council wanted to signal to Minnesota-based food distributor Nash Finch Co. that the county was in a mood to cooperate and, more important, that it was a better location than the other finalist, Louisville.

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Click here to read how the competition puts mayors in the hot seat.

The council later approved $438,746 in tax abatements and landed a commitment for 100 coveted jobs.

“We certainly wanted to move as expeditiously as possible,” council President Geoff McKim recalled. “It just seemed like an ideal match.”

Businesses have always held the upper hand in negotiations with local government, but the past couple of years have given rise to the most intensely competitive economic development environment since the early 1980s, a period when the industrial Midwest was digging out from the devastating back-to-back recessions that gave rise to the term “Rust Belt.”

Even unproven startups are playing communities off one another with demands for free space and upfront financing.

Economic development experts say they can’t think of a project in Indiana where local government took a foolish risk.

But cities sometimes push the limits. This spring, for instance, Greenwood committed $2 million in cash and a $6.2 million construction loan to help locally based Elona Biotechnologies launch what could become the nation’s first generic insulin—a product that has yet to even pass muster with the U.S. Food and Drug Administration.

Indiana observers say local officials in general have shown restraint, even when it meant losing projects to competing states willing to go overboard.

Holding the line hasn’t been easy. Mayors and other elected officials are getting earfuls from anxious constituents demanding they do more to recruit jobs. The pressure is goading political leaders of cities as large as Indianapolis to plunge into an arena they seldom understand and to bet incentives on companies they would have rejected as too risky a few years ago.

“What I’m seeing in some small towns is absolute, all-out panic, such a hunger for jobs,” said Linda Williamson, an economic development veteran now consulting from a base in Bloomington. “These communities are just dying on the vine.”

Strong-arm tactics

Indiana Economic Development Corp. records show job commitments are beginning to recover following a slide during the recession, which officially lasted from December 2007 to June 2009.

Commitments peaked at 22,627 in 2007, fell to 18,627 the following year, then last year ticked up to 19,955.

Commitments this year stood at 18,188 as of Aug. 21, IEDC said.

The average wage of the job commitments is beginning to recover, too. Having peaked at $22.62 in 2008, the wage dipped to $20.95 last year and is running at $21.56 this year.

The gains have come despite corporate strong-arm tactics.

Greg Wathen, president of the Economic Development Coalition of Southwest Indiana, said his Evansville-based organization took a pass on a German manufacturer of wind-turbine parts after the company demanded local taxpayers finance inventory but offered no guarantees. If the company’s customers reneged on a contract, the community would have been left holding a bag of specialized parts.

Wathen also was taken aback a few weeks ago when a company looking for a place to locate a call center wanted treatment like IBM received in May when it opted to open a technology support center in Columbia, Mo. Columbia pulled out the stops to land the 800 jobs, in part by buying an existing industrial building and organizing local banks to finance an office renovation; only later would IBM be charged a monthly fee for the space.

In another example of corporate audacity, Wathen said, Whirlpool Corp. last year “suggested” that Indiana change a statute requiring companies to make investments in order to receive incentives. Whirlpool wanted incentives simply to continue operating its sprawling refrigerator plant in Evansville.

The law wasn’t changed, and Whirlpool closed the plant this summer and moved the work to Mexico, eliminating 1,100 jobs from a location that once boasted more than 8,000 workers.

Asked whether it had suggested changing Indiana’s statute, Whirlpool, which maintains a technical center in Evansville, said the closure was a business decision and that incentives wouldn’t have changed the business case.

Established companies aren’t the only ones with big appetites for incentives.

Dan Theobald, executive director of Shelby County Development Corp., said startup medical and technology businesses, some based in the Indianapolis area, are prowling aggressively for money because the financial crisis made financing difficult to come by.

“They’re looking for capital wherever they can find it,” Theobald said.

Free use of facilities and extensive training funds are common requests, he said, declining to discuss specifics.

Early this year, a Golden, Colo., startup chose Greenville, S.C., over Shelbyville for a $64 million electric bus manufacturing plant after the company received promises of $50 million in incentives.

Proterra Inc. won’t discuss the incentive package. But Theobald and IEDC CEO Mitch Roob said the package amounted to $52,000 for each of the 963 jobs, which would pay an average of $21.79 an hour.

Figuring in Proterra’s decision on Greenville was the presence nearby of Clemson University, which has a focus in electric vehicle research. Theobald doubts the intellectual firepower was a deciding factor because the company seemed equally impressed with Purdue University.

A third factor was South Carolina’s status as a right-to-work state, meaning employees are less constrained to join labor unions. Indiana is not right-to-work.

When Indiana communities lose prospects, it’s usually to the South, where states are rolling out red carpets to build manufacturing bases. But the fiercest competition sometimes materializes elsewhere.

Michigan, which is struggling to reboot an economy decimated by the decline of Detroit automakers, earlier this year shot a larded offer of $113,000 per job to snag a Dow Chemical Co. manufacturing plant. The $244 million plant, which will make roof shingles embedded with solar cells, is a new endeavor for the chemical giant, and will employ 1,235 workers at $32.50 an hour. It will be near Dow’s headquarters in Midland, Mich.

Indiana offered only $10,000 per job for the plant, Roob said, because IEDC’s strategy is to use incentives like a car dealer might toss in floor mats on a deal to sell a car—an inexpensive extra to sweeten the deal and nothing more. Indiana should be attractive based on its low taxes, consistent regulations, high bond rating and planned road improvements, he said.

Ironically, after noticing a surge in competition from other states, Roob said the intensity has quieted somewhat because states are running out of money for incentives.

What’s heating up now is international competition. Of the 130 projects Indiana has landed this year, 30 have been in tussles exclusively with other countries—Germany, India and Japan among them. Even companies with as few as 500 employees are shopping expansions in other countries.

“It’s ratcheted up dramatically,” Roob said. “Companies are looking to invest dollars on a global basis.”

Don Iannone, an economic development consultant based in Cleveland, sees no end anytime soon to the heightened competition for jobs.

Companies clearly are upping their leverage against communities, Iannone said. While local governments have less money to dangle for incentives, companies are well aware that communities are desperate.

“That’s economic development,” Iannone said. “It’s increasingly risky now.”

Pounding on prospects

Local leaders aren’t letting good prospects slip out of their hands if they can help it.

Monroe County pounced when offered the shot at the Nash Finch jobs.

County officials emphasize they scrutinized the deal as thoroughly as any other prospect. The company didn’t respond to requests for interviews, but Monroe officials believe one reason Nash Finch chose Bloomington was the speed with which it vetted the deal.

The company was interested in taking over a 300,000-square-foot warehouse vacated about a year earlier by Northstar/US Foodservice, resulting in 100 workers being laid off.

Not only did Nash Finch distribute food, making the company a good fit for the property, but it also planned to quickly invest $8 million in improvements and $2 million in machinery and equipment. At least 100 jobs would be created through 2014 at an average wage over $14 an hour, plus full benefits.

Upon hearing about the possibility, the Monroe County Council unanimously approved an initial step toward Economic Revitalization Area status. The following morning, the county economic development commission met and unanimously recommended the tax abatement.

It was the first time in at least two years that the full council moved ahead on an abatement before receiving a recommendation from the economic development commission, said Assistant County Attorney Jeff Cockerill.

Hours after the economic development commission meeting, the county redevelopment commission gathered and unanimously recommended the deal, saying it wouldn’t hurt the city’s ability to pay off bonds issued to fund improvements in the area.

Final approval of the abatement came during a council meeting Aug. 3, about two weeks after the process started.•
 

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  1. Apologies for the wall of text. I promise I had this nicely formatted in paragraphs in Notepad before pasting here.

  2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

  3. Clearly, there is a lack of a basic understanding of economics. It is not up to the company to decide what to pay its workers. If companies were able to decide how much to pay their workers then why wouldn't they pay everyone minimum wage? Why choose to pay $10 or $14 when they could pay $7? The answer is that companies DO NOT decide how much to pay workers. It is the market that dictates what a worker is worth and how much they should get paid. If Lowe's chooses to pay a call center worker $7 an hour it will not be able to hire anyone for the job, because all those people will work for someone else paying the market rate of $10-$14 an hour. This forces Lowes to pay its workers that much. Not because it wants to pay them that much out of the goodness of their heart, but because it has to pay them that much in order to stay competitive and attract good workers.

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